In a research paper published last week, Robin Farley of UBS Securities, one of the industry’s most respected gaming company analysts, raised her target price on the share of Wynn Resorts Limited (WYNN). She said she had a rating of Buy 2 and a target price of the shares at $61 each.
"We have made some adjustments for slightly higher EBITDA (earnings before interest, taxes, depreciation and amortization) multiples in Las Vegas (and therefore Macau) to be more in line with our other gaming valuations," she wrote in a note explaining the price increase.
"Our valuation now assumes a 10x multiple (up from 9.5x) in Las Vegas and a 9x multiple (up from 8.5x) in Macau. But a bigger part of our target adjustment comes from adjusting our valuation to include Wynn’s Las Vegas acreage.
"For other gaming operators, we have adjusted valuations to reflect either land value or the value of the land if developed into a project. Wynn has a unique asset with its 137 acres of golf course. While that is not 137 acres of Strip frontage, recent transactions have put $4-5 million per acre values on other acreage near the Strip and greater values for Strip frontage."
She added that she was also factoring in the operation that Wynn Resorts will operate in Macau both in Phase 1 and Phase 2.
She concluded, however, with a word of caution.
"We continue to caution that with no operations and with a higher-risk market like Macau, the stock certainly carries risk. We believe that WYNN carries a higher risk than other names in the industry and is a more speculative investment."
The WYNN Las Vegas property is under construction on the land formerly occupied by the Desert Inn and is expected to open in April 2005. The Macau gaming properties are not expected on line until late 2006 or shortly thereafter.